Surveying Europe's SPAC landscape

Former Natixis CEO explains appeal of SPAC structure, and how 'lack of exuberance' could give European investors an edge

Surveying Europe's SPAC landscape

Last year, the U.S. government and central bank undertook a bold campaign to keep the country’s economy afloat amid a once-in-a-century pandemic. As entire sectors and industries were shut down to prevent the spread of COVID-19, the powers that be unleashed a wave of support to help hard-hit individuals and households survive.

While activity in the broader economy was choked off, many Americans were able to get along just fine, with some being able to strengthen their finances thanks to the money they were getting from stimulus cheques. That helped fuel a frenzy of investors chasing what they saw as high-potential investments, including special purpose acquisition companies (SPACs).

“SPACs are not a novel phenomenon. They’ve actually been around for 30 years,” said Jean Raby, who headed Natixis Investment Managers as its CEO from February 2017 to April 2021. Now he is co-CEO of Odyssey Acquisition, a SPAC sponsored by himself as well as Michael and Yoel Zaoui, the founders of London-based M&A boutique Zaoui & Co; Olivier Brandicourt, ex-CEO of Sanofi; and Michel Combes, ex-CEO of Alcatel Lucent and Sprint.

“Adoption has accelerated in recent years, in part because of some financial innovations around what the market standard is now for a SPAC,” he said. “As is usually the case, those innovations emerged in the U.S., and they are finding their way to other jurisdictions like Europe with a bit of delay and a little less exuberance.”

Of course, European investors don’t have to try very hard to be less excited about SPACs than their U.S. counterparts. As Raby noted, there are more than 500 SPACs listed in the U.S. today, with launches in 2021 being comfortably above the full-year total of SPAC listings in 2020. Still, investors and companies around the world have good reasons to consider the so-called blank-cheque corporation in their investment and capital-raising activities.

“For companies, SPACs are part of their toolbox of options as they seek access to the financial market,” Raby said. “They’re not for everyone, but they do address some potentially problematic aspects of the traditional IPO process.”

One complaint shared by many companies is the limited visibility they have as they navigate the traditional IPO process, particularly in Europe. Members of the management team may work for a year up to a year and a half to arrive at the point where they become listed, only to find that the market window has already closed or that they’re being priced at an unfavourable rate by the financial intermediaries.

In comparison, companies that consider combining with a SPAC have greater security as they have a less complex and shorter process to go through. IPO pricing is also more certain, as companies merging into a SPAC come to an agreement with not just the SPAC sponsors, but also with outside investors who supplement the capital provided by the SPAC.

“You set a determined price up front to which the target company commits as they list on the financial markets. The idea is to determine the price at which the company will have a successful equity story in the public market,” Raby said. “For some companies, the ability to raise capital quickly for growth through a SPAC is also very valuable.”

SPACs are also an investor-friendly product, Raby argued. Investors who put money in a blank-check company are not placed in a blind pool of capital; they get to vote on whether to accept or reject its combination with a target business. They also have the ability to withdraw the capital they allocated for the transaction, independent of their opinion of the business to be acquired.

Over the past year, many SPACs have been launched to take advantage of sectors with strong secular and tactical growth prospects like technology. Odyssey’s objective is to merge with a business within the healthcare or technology, media & entertainment, and telecommunications (TMT) sector with principal operations in Europe. It was able to raise 300 million euros after it launched on the Euronext Amsterdam exchange early this month.

“Regulations prevent us from talking to companies before we are listed, but we already have a number of substantive dialogues with interesting, innovative companies,” Raby said. “Innovation is seeing an acceleration in Europe and for us, that provides for good mid- to long-term growth prospects.”

Within the European space, he said the Euronext Amsterdam exchange provides a good platform for capital-raising. Aside from having good liquidity, it has a broad investor base consisting of 40% American investors, 40% Europeans, and 20% from other parts of the world. Euronext, which also has bourses in other continental locations like Brussels, Oslo, and Paris, is the largest stock exchange operator in Europe aside from the London Stock Exchange.

“While the U.S. is a single integrated market, Europe is much more complex,” Raby said. “You’ve got many places of listing, so it creates various options for sponsors to have the SPAC listed, which also colours how SPACs interrelate with potential business partners and targets.”

The European SPAC market is also much sleepier compared to the American market. While there were also SPACs listed there in the 2000s and 2010s, only around 20 SPACs are currently listed in Europe. The region saw its first de-SPAC for the current wave earlier this month in Germany, so it remains to be seen whether European SPACs can prove their worth.

If investor discipline is the barometer of future success, then certainly Europe is on the right track. From Raby’s vantage point, investors in the region are not as bedazzled by star power; having a celebrity or pro athlete on the team of sponsors might help sway investors in the U.S., but the dream teams behind European SPACs tend to be individuals with highly relevant and extensive experience in either financial dealmaking or the target industry.

“I could be wrong, but I would not be surprised if at the end of the day, there's a more of a longer-term approach to SPACs in Europe than in the US,” he said. “People take it one SPAC at a time, see how it resonates with target companies, see who are behind these SPACs. Rather than a frenzy that challenges the limits of sanity, there is a flight to quality which we believe is very helpful for the market.”